What is an “Automatic Conversion” clause? – SAFE..

The Simple Agreement for Future Equity (SAFE) functions like a convertible loan - the investor pays cash and will have the right to convert the instrument into an equity stake in the company at some later date. However, it is not a debt instrument. Consequently there is no accrual of interest which is good for the company, but there is no maturity date either meaning the investor might not necessarily be paid back if the instrument never converts to equity. The SAFE can have just a valuation cap, or just a discount, or both at once. Before using a SAFE, tax advice should be obtained about the availability of tax credits.

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